Transfer pricing in the UAE refers to the rules and methods used to determine the prices and conditions of transactions between Related Parties and Connected Persons. These transactions can include the sale or purchase of goods, provision of services, financing, royalties, transfers of intellectual property and other controlled arrangements. The central requirement is that the transaction should generally reflect the conditions that independent parties would have agreed to in comparable circumstances.
The UAE transfer pricing framework forms part of the Federal Corporate Tax regime introduced under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. The Corporate Tax Law applies to financial years beginning on or after 1 June 2023. Article 34 establishes the arm’s length principle, while Article 55 provides the legal basis for transfer pricing documentation. The Federal Tax Authority, or FTA, administers the Corporate Tax regime and publishes guidance on how taxpayers should approach transfer pricing.
For businesses operating in the UAE, transfer pricing is therefore not simply an accounting exercise. It is part of Corporate Tax compliance and can affect taxable income, documentation, disclosure and the evidence a business may need to provide if the FTA reviews its tax position.
How Does Transfer Pricing Work in the UAE?
Consider a UAE company that purchases management services from its overseas parent company. Because the two entities are related, the price may not be determined entirely by ordinary market negotiations. UAE transfer pricing rules require the parties to consider whether the charge is consistent with what independent parties would have agreed for comparable services.
The same principle can apply to intercompany loans, distribution arrangements, purchases of inventory, technical services, licensing of intellectual property, guarantees and other controlled transactions. The analysis normally starts by identifying the transaction, understanding the functions performed by each party, examining the assets used and risks assumed, and then selecting an appropriate transfer pricing method.
What Is the Arm’s Length Principle?
The arm’s length principle is the foundation of UAE transfer pricing. Under Article 34 of the Corporate Tax Law, a transaction or arrangement between Related Parties meets the arm’s length standard when its results are consistent with the results that would have been realised if independent persons had entered into a similar transaction under similar circumstances.
In practical terms, the question is not simply whether a price looks reasonable. The business needs to consider the commercial facts behind the transaction and determine whether the pricing is supportable by an objective comparison with independent dealings. The FTA’s Transfer Pricing Guide explains that the arm’s length principle is intended to prevent controlled transactions from being priced in a way that artificially shifts taxable profits between entities or jurisdictions.
Which Transactions Can Be Covered by UAE Transfer Pricing Rules?
Transfer pricing can apply to a wide range of transactions between Related Parties and Connected Persons. Common examples include:
- Sale or purchase of goods and inventory
- Management, administrative, technical and professional services
- Intercompany loans, financing and guarantees
- Royalties and intellectual property licensing
- Cost-sharing and group service arrangements
- Distribution and agency arrangements
- Transfers or use of intangible assets
- Certain transactions involving permanent establishments
The correct analysis depends on the facts and the legal definitions in the UAE Corporate Tax Law. A business should not assume that every transaction between companies in the same wider group is automatically treated in the same way. Related Party and Connected Person status should be assessed under the UAE rules rather than being determined solely from financial reporting classifications.
Which Transfer Pricing Methods Are Recognised in the UAE?
Article 34 of the UAE Corporate Tax Law identifies five transfer pricing methods. Businesses can apply one method or a combination of methods, depending on which approach provides the most reliable arm’s length result for the transaction.
Comparable Uncontrolled Price Method (CUP): Compares the price charged in a controlled transaction with the price charged in a comparable transaction between independent parties.
Resale Price Method (RPM): Starts with the resale price to an independent customer and works backwards by considering an appropriate gross margin for the reseller.
Cost Plus Method: Applies an appropriate mark-up to the relevant costs incurred by the supplier of goods or services.
Transactional Net Margin Method (TNMM): Tests a suitable net profit indicator against comparable independent companies or transactions.
Transactional Profit Split Method: Allocates the combined profit from a controlled transaction among the related parties based on their respective contributions and relevant economic factors.
What Are the UAE Transfer Pricing Documentation Requirements?
Article 55 of the Corporate Tax Law allows the FTA to require taxpayers to disclose information about transactions and arrangements with Related Parties and Connected Persons. Certain taxpayers must also maintain a Master File and Local File when the conditions specified by the Minister are met.
Ministerial Decision No. 97 of 2023 sets the main thresholds for maintaining a Master File and Local File. A Taxable Person is required to maintain both files for a relevant tax period where either the Taxable Person’s revenue is at least AED 200 million, or the Taxable Person is a Constituent Company of a multinational enterprise group with consolidated group revenue of at least AED 3.15 billion for the relevant tax period.
The FTA may request transfer pricing documentation, and Article 55 provides that documentation covered by the article must generally be submitted within 30 days following a request, or within another period specified by the Authority. Businesses should therefore maintain their transfer pricing records in an organised and defensible form rather than preparing them only after receiving an FTA request.
What Is the Role of the Federal Tax Authority in UAE Transfer Pricing?
The Federal Tax Authority is responsible for administering and enforcing the UAE Federal Tax framework. In relation to transfer pricing, the FTA provides guidance on the arm’s length principle, transfer pricing methods, documentation and the disclosure information that taxpayers may need to provide.
The FTA’s Corporate Tax return guidance also explains that taxpayers may need to report information concerning Related Party and Connected Person transactions. For example, the Connected Persons Schedule applies when the aggregate value of relevant transactions with a Connected Person, including Related Parties of that Connected Person, exceeds AED 500,000. The precise reporting requirements depend on the transaction and the taxpayer’s circumstances.
This makes record keeping important. A company should be able to explain who its Related Parties and Connected Persons are, what transactions took place, why the transaction was commercially necessary, how the price was determined and what evidence supports the arm’s length position.
Does Transfer Pricing Apply Only to Large Multinational Companies?
No. The arm’s length principle is not limited to large multinational enterprises. UAE transfer pricing rules can be relevant to taxable businesses that enter into transactions with Related Parties or Connected Persons. The documentation thresholds determine when specific formal files such as the Master File and Local File must be maintained, but the underlying arm’s length requirement is broader.
This distinction is important for UAE SMEs and privately owned businesses. A company may not be required to prepare a Master File or Local File, yet it can still have transfer pricing considerations for transactions with related entities, owners or other connected persons. Businesses should therefore distinguish between the substantive arm’s length requirement and the separate documentation thresholds.
Why Is Transfer Pricing Important for UAE Businesses?
Transfer pricing affects more than the amount charged on an intercompany invoice. It can influence the allocation of taxable profit within a group and the amount of UAE Corporate Tax ultimately payable. If pricing is not supported by an appropriate economic analysis, a taxpayer may face questions from the FTA and potentially a transfer pricing adjustment.
A strong transfer pricing process can also improve internal governance. It gives businesses a structured way to document intercompany arrangements, align contracts with actual business activities, assess financial risks and maintain consistent pricing policies across the group.
What Should a UAE Business Do to Stay Transfer Pricing Compliant?
- Identify all Related Parties and Connected Persons under the UAE Corporate Tax rules.
- Map the group’s controlled transactions, including goods, services, financing, royalties and other arrangements.
- Perform a functional analysis covering functions performed, assets used and risks assumed.
- Select the most appropriate transfer pricing method for each material transaction.
- Use reliable comparable data where benchmarking is required.
- Review intercompany agreements to ensure that the contractual terms match the actual conduct of the parties.
- Prepare and maintain the required transfer pricing documentation and disclosures.
- Keep supporting records that explain the commercial rationale and pricing methodology.
- Review transfer pricing policies when business models, markets, group structures or transaction terms change.
How BCL Globiz Can Help With Transfer Pricing in the UAE
BCL Globiz provides transfer pricing advisory and compliance support for businesses operating in the UAE. Its transfer pricing practice covers benchmarking and comparability analysis, Related Party and Connected Person analysis, intercompany transaction reviews, transfer pricing documentation and support with UAE Corporate Tax compliance.
BCL Globiz’s approach includes transaction mapping, functional analysis, comparable company or transaction selection, comparability adjustments where appropriate and determination of an arm’s length range. The firm also supports businesses with Local File and Master File requirements and other transfer pricing compliance needs.
Frequently Asked Questions
What is transfer pricing in the UAE?
Transfer pricing is the process of determining and documenting the prices and conditions of transactions between Related Parties and Connected Persons. UAE rules require controlled transactions to meet the arm’s length standard.
Is transfer pricing mandatory in the UAE?
The arm’s length principle applies under the UAE Corporate Tax Law to transactions within its scope. Specific documentation obligations, including Master File and Local File requirements, apply when the relevant statutory thresholds and conditions are met.
What law governs transfer pricing in the UAE?
Transfer pricing is principally governed by Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, particularly Article 34 on the arm’s length principle and Article 55 on transfer pricing documentation, together with implementing decisions such as Ministerial Decision No. 97 of 2023.
What is the UAE Local File threshold?
A Taxable Person generally falls within the Master File and Local File requirement where its revenue is at least AED 200 million in the relevant tax period, or where it is a Constituent Company of an MNE Group with consolidated group revenue of at least AED 3.15 billion.
Does the FTA audit transfer pricing?
The FTA administers the Corporate Tax regime and can request relevant transfer pricing information and documentation. Businesses should maintain evidence supporting their arm’s length position and be prepared to provide it when requested.
Why should a UAE company conduct a transfer pricing benchmarking study?
A benchmarking study can provide economic evidence that an intercompany price or margin is consistent with independent market outcomes. It can strengthen the taxpayer’s documentation and help support the arm’s length position during an FTA review.
Conclusion
Transfer pricing in the UAE is fundamentally about ensuring that transactions between Related Parties and Connected Persons are priced on an arm’s length basis. Since the UAE Corporate Tax regime came into effect for financial years beginning on or after 1 June 2023, transfer pricing has become an important part of tax governance for businesses with controlled transactions.
The key starting points are Article 34 of the Corporate Tax Law, the documentation requirements in Article 55, Ministerial Decision No. 97 of 2023 and the FTA’s transfer pricing guidance. Businesses that understand their transactions, apply an appropriate pricing method and maintain clear supporting evidence are better positioned to meet UAE Corporate Tax requirements and respond to FTA questions.
